Saturday, November 17, 2007

Climate change investing: no longer "ethical"?

Guardian (Environment): Floods, storms, hurricanes and tornados - only the most virulent deniers of global warming and its effects refuse to accept climate change and its effects. But a growing number of investors see new weather patterns and their results as opportunities, as well as problems. Fund managers are rushing to set up "climate change" funds. Allianz, F&C, HSBC, Jupiter and Schroders are leading the field with new or planned funds and HSBC calls climate change "one of the biggest investment themes for the foreseeable future".

So far, these have attracted tiny amounts - under £100m - but there are hopes of increasing interest which will lead other fund managers to join in if the cash inflow becomes a reality. The trick managers hope to pull off is spotting firms well placed to respond to a changing climate and its effects on the wider economy. "Global warming will have a huge impact on everything, including transport, property, agriculture and insurance," says Simon Webber, joint manager of Schroders Global Climate Change fund. "We look for companies that either mitigate climate change or help others adapt to it. We have identified 600 worldwide but our fund only invests in around 75."

Strictly speaking, the Schroders fund is not an ethical or "green" fund. While it can invest in clean wind or wave energy, it can also buy shares in the nuclear power industry. It hopes to appeal both to investors who believe climate change is a huge threat and those who simply believe this is the way the stock market is heading. It holds shares in insurer Munich Re, which has a 30-strong team researching how insurers should react to the new environment.

HSBC's Climate Change fund was launched earlier this month. It has also set up a "Climate Change Centre of Excellence," to analyse some off the key issues. Run by Nick Robins, formerly a fund manager specialising in socially responsible investment, it seeks "to act as a catalyst for greater understanding of the scientific, regulatory and economic dimensions of climate change".

Mr Robins says: "The bank looked at its own carbon footprint and achieved neutrality in 2005. Last year, we initiated a carbon finance strategy looking at how climate change impacted on lending decisions and corporate operations. From there, HSBC moved to setting up the new centre which will research how the bank can go beyond carbon neutrality to full sustainability."

HSBC's new fund is managed by Farley Thomas, who sees climate change as all-encompassing. "It's a structural factor that will have far more impact than the internet. It affects basics such as agriculture, housing and the food versus fuel debate in the biofuel arena. It's not just a future threat - it's here now, and how firms react to it will determine the course of future earnings," Mr Thomas says. "We have set up an investable climate change index of around 300 diversified companies that derive more than 50% of total revenues from climate-change related activities."

Mr Thomas says that if an investor had been able to buy into the index in January 2004, he or she would have enjoyed a return of 125%. The MSCI World index advanced 55% over the same period. Mr Thomas says investors must forget geographical boundaries as climate change and methods of dealing with it are global: "Demand for low-cost items in China can lead to demand for wind turbines from Denmark. But we are disproportionately invested in emerging markets because it is countries like India and China that can be both the problem and the solution."

The F&C Global Opportunities fund is unashamedly "non-ethical". "There is no negative screening out of companies. We can invest how we want in companies which harness the opportunities from climate change. This is much broader than an alternative energy fund. The fund will look at the consequences of climate change, how these are confronted at the highest levels of government, and the subsequent policy changes that result," says Vicki Bakhshi, a climate change expert and former senior researcher on the Stern Review on the Economics of Climate Change, who is part of F&C's 15-strong governance and sustainability team advising the fund.

The Allianz Global Eco Trends fund will target companies involved in alternative energy, pollution control and clean water. "Extreme weather conditions and climate change are becoming more prevalent. This is leading to a new industrial revolution as companies are having to respond," says fund manager Bozena Jankowska.

June 2009 – At the studios of Cleanskies TV, I was interviewed about the costs of climate change, and discussed adaptation efforts underway in the US and around the world.

May 2009 – I helped draft the scenarios for Rising Waters, a multistakeholder scenarios effort focused on climate change adaptation in the Hudson Valley. The final report is now completed and available here.

May 2008 – I reviewed two books on climate and energy in the New Leader magazine: James Gustave Speth's The Bridge at the Edge of the World: Capitalism, the Environment and Crossing from Crisis to Sustainability, plus Robert Bryce's Gusher of Lies: The Dangerous Delusions of Energy Independence.

January 2008 – A very local paper covers a very global issue.... The Litchfield County Times in northwestern Connectictut ran an article in January 2008 about Carbon-Based.

Now available: Climate Change Adaptation in 2011

A selection of my writings from 2011, plus some of my posts, as well as links... all focusing on the risks of climate change